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FOCUS: French Govt Stays Optimistic Despite Growing Risk

   By Geraldine Amiel 

Of DOW JONES NEWSWIRES

PARIS (Dow Jones)--The French government is sticking to optimistic economic forecasts for 2008, even as Germany and other euro-zone economies revise growth targets downward amid a global slowdown.

French Prime Minister Francois Fillon said Tuesday that the government's target of 2.0% to 2.25% growth in gross domestic product this year is attainable, after rising by "close to" 2.0% growth in 2007.

In his New Year's address to journalists, he said improving the country's finances is his government's top priority. He seeks a balanced budget thanks to a freeze in public spending and public-sector reforms.

The French government's outlook is distinctly rosier than those of many private-sector economists, casting some doubt about the reliability of the government's budget planning for this year.

Fillon's confidence contrast with those of fellow-frenchman Jean-Claude Trichet, president of the European Central Bank, who recently saw serious threats to euro-zone growth. German Finance Minister Peer Steinbruck said his government would likely revise down from its 2.0% target for 2008 growth.

But financial markets wasn't surprised that French government sees things differently.

"As we can see since 2001, the gap between government forecast and reality will remain significant," Global Equities' chief economist Marc Touati said. "Something to worsen our public deficit above 3%" of GDP, Touati added. He sees growth of 1.6% in 2008.

This shortfall could open gaps in potential tax receipts and the French government's budget planning. The budget for 2008 foresees a budget deficit amounting to 2.3% of gross domestic product. Economists estimate that each lost tenth of a percentage point of GDP translates into a widening in the budget deficit by 0.05 percentage point.

"Real problems are rarely solved through spin" by the government, said Touti.

In its December outlook, French national statistics office Insee said that by the end of the second quarter this year, France will have accumulated 1.7% of growth in GDP, the source pointed out.

But private economists aren't convinced. "It remains to be seen if such growth will have been accumulated by the end of the first half," BNP Paribas' economist Mathieu Kaiser said.

"We don't have figures for the last quarter of 2007, and we would need also the figures for the first quarter this year to assess the damage of the financial crisis," Kaiser added. He expects French growth of just 1.3% in 2008.

Business leaders for now concur with the government. According to the latest sentiment survey of French business managers in December, the sentiment index was unchanged from November at 110. That was just under the 112 reading in April, which was the highest since March 2001.

Businesses and consumers have been supported by a series of tax breaks and other incentives legislated by the government of President Nicolas Sakozy since his May election.

Government officials say confidentially that the strong - and still strengthening euro - is weighing down on French export economy, whose goods become more expensive in International markets.

"Needless to say, we would love the euro stopped rising," said a source close Finance Minister Christine Largarde. "Between 2002 and 2006, France lost 2 percebtage points of growth in GDP due to the rise of the single currency," the source said, adding that "even our German partners reckon they are somehow suffering from it."

France's trade deficit widened in November to EUR4.79 billion from a EUR3.6-billion gap in October.

More worrisome, consumers' sentiment and consumer spending, France's main growth driver for the past 10 years, have recently fallen on concerns over inflation, notably in oil prices and food products.

With so little data in, the government can still defend an optimistic scenario, BNP Paribas' Kaiser said. "Official forecasts are a way to support confidence for both companies and consumers," he remarked adding, "until we see the risks materialize, their forecast is not wishful thinking - not yet." - By Geraldine Amiel, Dow Jones Newswires; +331 40171740; geraldine.amiel@dowjones.com

(END) Dow Jones Newswires

January 15, 2008 08:00 ET (13:00 GMT)


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